IEEJ Webinar for the World

7th November 2023

IEEJ Outlook 2024
－How can various pathways toward energy transition be achieved?－Topic:ASEAN ‘s Pathways towards Energy Transition

Seiya EndoSenior Economist

Institute of Energy Economics, Japan (IEEJ)Part 1 (Main Scenarios)• Global Energy Supply and Demand Outlook to 2050

Part 2 (Topics)
 ASEAN ‘s Pathways towards Energy Transition•

The Important Role of LNG and Natural Gas•

Negative Emissions

Box Analysis from the Report
IEEJ © 2023•

Electrification of Automobiles and Synthetic Fuels
1Part 2: ASEAN’s Pathways towards Energy Transition
Demand growth in ASEAN is significant; net zero is a significant challenge.
Pledges of ASEAN Countries

Developing Economies

Change in Primary Energy (2021-2050)
China

Most recent developments

India
ASEAN
Other Asia
AfricaREF

ATS

BruneiN.A.

Cambodia

CN by 2050 (L/T Strategy, Dec. 2021)

Indonesia

NZ by 2060 or sooner (L/T Strategy, July 2021)

Lao PDR

NZ by 2050 (Climate Ambition Alliance)

Middle East

Malaysia

CN by 2050 (PM expressed in Sept. 2021)

Latin America

Myanmar

NZ by 2050 (Climate Ambition Alliance,)

Europe/Eurasia

PhilippinesN.A.

Advanced Economies

Singapore

NZ by 2050 (updated L/T Strategy, Nov. 2022)

ThailandCN by 2050 & NZ by 2065 (PM expressed at COP26)

Vietnam

CN by 2050 (PM expressed at COP26)

International Bunkers
-1.5

Gtoe
-1.0

-0.5

0.0

0.5

1.0

1.5

 As ASEAN continues to achieve significant economic growth, the region will be the center ofenergy demand growth in the world.
 Since COP26, eight countries have announced carbon-neutral targets by 2050 or 2060.
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 Reducing CO2 emissions while expanding energy supply is a significant challenge.
2Part 2: ASEANIEA G7 Report: comparison of IEA and ERIA/IEEJ pathways
 Future energy demand significantly differs, depending on
assumptions of economic growth and energy efficiency improvement.
Growth of ASEAN’s GDP and TFC toward 2050

ASEAN’s Energy Efficiency Improvement(past five decades and future)

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Historical trend

Source: produced from IEA, Decarbonization
Pathways for Southeast Asia(2023)

Source: produced from IEA, Decarbonization Pathways forSoutheast Asia(2023) and IEA, World Energy Balances3

Part 2: ASEANIEA G7 Report: comparison of IEA and ERIA/IEEJ pathways
ASEAN Primary Energy Demand (IEA, ERIA/IEEJ comparison) The optimal energy mix in the future will change
depending on the scale of demand.
IEAThe low demand level enables renewable energy
and electrification while reducing the supply ofnatural gas.

Renewable energy accounts for about 80% of thetotal power generation in 2050.

ERIA/IEEJIEEJ © 2023

To meet the high demand level, not only
renewable energy in the same amount as the IEA;(1) fossil fuels expansion (especially natural gas)(2) decarbonization by hydrogen and CCS, CO2
removal by DACCS and BECCS are required.

Large Gapof gas demand

ーIEA-APS

Close level●ERIA/IEEJ

source：IEA, Decarbonization Pathways for Southeast Asia,(2023)

The renewable energy share is about 60%.

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Part 2: ASEAN
Analysis Framework︓Cost-optimal energy mix
 Optimal Case is the energy mix that can meet the net-zero target of each ASEAN
country at the lowest cost while meeting the demand of ERIA/IEEJ.
 Under the same demand growth, three cases are simulated; RE40: lower penetration ofrenewable energy, RE80: higher penetration of renewable energy, and gas-cap: gas
supply constraint.
IEEJ-NE

Case Assumptions
Cases

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OptimalRenewable
share inpower
No limitation（60% as a result）

Primary
supply ofgas

Model(Bottom-up Optimization model)
CN YearInput:- CO2 Reduction Target - Energy Demands- Tech. Information (Cost, Efficiency, etc.)

No limitation

Gas-Cap

No limitation

Same as 2019

RE40

40％

No limitation

RE80

80％

No limitation

2050/2060
Output︓
Cost-minimum energy mix which achieve theCO2 reduction target

5Part 2: ASEAN RE80 increases costs in the long term,
while Gas-Cap increases costs in the mid-term.
Total CO2 reduction cost* (ASEAN, per GDP)
4.4%

Optimal

4%

RE80

3.6%

Gas-Cap

3.3%

3%
2.1%

2%

 The total CO2 reduction (abatement) cost toachieve 2060 net zero is US$570 billion/year,
equivalent to 3.3% of GDP, in the optimal case.
 If the optimal energy mix is not realized, theabatement cost rises further; RE80︓Cost in 2060 rises to 4.4% of the GDP.
The increase in 2050-2060 is especiallysignificant.

1.7%

1%0%
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2017

2030

2040

2050

2060

Gas-Cap︓ The costs during the 2030-2040 are
particularly large.
In other words, the expansion of natural gas supply
during the transition period will contribute significantly
to cost reductions.

＊ The cost difference between the total cost of energy supply (capital, fuel, O&M, etc.) , compared to the baseline case without emission reductions.
The future GDP is estimated from “Energy Outlook and Energy Saving Potential in East Asia 2020”(ERIA, 2021). 2017 Constant USD.

6Part 2: ASEAN Although LCOE of renewable will decrease over time,
massive penetration requires additional cost
Levelized Cost of Electricity(2050, Thailand)cent/kWh
10.3

Other OPEX

FuelPower Generation

CAPEX

TWh6000

Ammonia
HydrogenBiomass

11.5
9.7

Offshore wind

5.3
3.5

4.7

5.9

5.9

4000

Onshore wind
Solar PV
Geothermal
Hydro

2000

Gas-hydrogenGas
Coal-biomass

0RE40Source）Estimated from Danish Energy Agency (2021), IEA(2022)*Costs inside power generation facilities alone; which does not include
integration costs.

Optimal
2050RE80Coal-ammonia
CoalNuclear

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 The generation cost of renewable energy itself (LCOE) is expected to be relatively low among zero-emission
power in 2050. Therefore, if the installation is low, the average power generation cost would increase.[RE40]
 On the other hand, if variable renewable energy (solar and wind) is increased to the level of [RE80], it will benecessary to introduce them to areas with worse weather conditions, and integration costs for dealing withoutput fluctuations (batteries, etc.) will increase, leading to higher overall system costs.
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Part 2: ASEAN Gas plays an important role in heat demandand power generation, during the transition period
Natural Gas Demand(2050)
OthersPower generation
Household/Service
Chemical Feedstock
Industrial Boiler
Industrial Furnace

Mtoe
300

200

Power Generation

TWh6000

Ammonia
HydrogenBiomass
Offshore wind

4000

Onshore wind
Solar PV
Geothermal
Hydro

2000

100

Gas-hydrogen
Gas
Coal-biomass0

Coal-ammonia

0

OptimalGas-Cap
2050

History2021

OptimalGas-Cap
2050

CoalNuclear In the optimal case, natural gas is primarily a fuel for industrial furnaces, which are difficult to electrify. Inthe gas-cap case, the shortage must be offset by oil and coal, which have higher emission factors.
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 In the optimal case, gas-fired power generation is introduced to balance supply and demand.
8Part 2: ASEAN
On the way to net-zero, gas is competitive among fossil fuels
Fuel Price（Includes Carbon Price）（USD/TOE）

Steam Coal

2,000

33 ￠ /㎥

1,800

Hydrogen Price

Fuel Oil In demand sectors where electrification is difficult, fossil fuel use is
expected to continue until a low-cost hydrogen supply is realized.
Gas(1) Coal has the smallest price per calorific value of fuel alone.
(2) As ASEAN moves toward net zero, some external cost isexpected to be attached to CO2 emissions.

1,600
1,400

20￠/㎥
（target for 2030 Japan）

If the carbon price increases to around $150/t, gas would beaffordable.

1,200
1,000
800

13￠/㎥
（Target for 2050）(3) If the carbon price increases significantly and the hydrogen
price is reduced to about 13 cents/m3, the H2 price may fallbelow the gas price.

600400200①②③00 The cost advantages among fuels will change as follows.

50 100 150 200 250 300 350 400
Carbon Price（USD/t）

Gas could become competitive where the carbon price falls
between (2) and (3).
* The MAC (marginal abatement cost*) calculated from this analysis is around
200$/t-CO2 in 2040 and 370$/t in 2050, a level at which gas use has someadvantage.

IEEJ © 2023Source）Advanced Technologies Scenario, 2050

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Part 2: ASEAN’s Pathways towards Energy TransitionConclusion
 For ASEAN, with its remarkable economic development, cost efficiency of energy transitionis essential to achieve both economic growth and CN.
 Depending on future assumptions for growth and energy efficiency improvements, there will besignificant differences in the outlook of future energy demand. It is not sufficient to simply focus
on the share of renewable energy, as the optimal energy mix will vary depending on thetotal amount of demand.
 The cost of renewable energy is expected to be low among zero-emission power sources,
making it a promising power source. However, it should be noted that suitable sites are limited,
and the integration cost may increase when variable renewable covers a large part of theelectricity supply.

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 Gas will mainly play a role in reducing industrial emissions (especially hard-to-abate sectors) andin dispatchable power generation. It can be an important energy source for emission
reductions, especially during the transition toward zero emissions.
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contact: report@tky.ieej.or.jp